Year-End Meetings Could Introduce a Stabilizer

Since 1992, U.S. stocks, as represented by the S&P 500, have outperformed international stocks, as represented by the MSCI World Index, 10.65% to 8.25% on a compound annual basis. However, so far in 2025, the situation has reversed, with U.S. equities significantly trailing their international counterparts.

According to Morningstar, their Global Markets ex-U.S. Index has increased more than twice as much as the U.S. market index since the start of the year.

When you look at S&P 500 price to book value, U.S. valuations are high by historical standards and might portend that a correction is coming.

Other trends that may also contribute to a shift away from U.S. stocks include the impact of the U.S. federal deficit, which was more than $37 trillion, or 6.3% of gross domestic product, in fiscal year 2024, and the aging population, which could lead to increased spending, lower growth, and even more debt.

Also, consensus around how to lower interest rates won't necessarily help the labor market.

Corporations have been slow to hire, and they are not replacing the workers leaving the workforce.

Amazon and other large firms have recently cut jobs and are actively looking to reduce staff levels as the impact of robotics and agentic AI grows.

Alternatively, despite all this, we might see scenarios where things work out and the upside movement continues.

The impact of the "One Big Beautiful Bill Act" hasn't kicked in yet.

The act could boost manufacturing.

Tariff negotiations may lead to more investment.

They may not be inflationary, and some rate cuts could possibly boost the housing market as well as stocks.

Bottom-line: Nobody knows for sure, so uncertainty remains along with a desire for financial safety.

There is good reason to hedge your bets for clients.

As such, mid-year client discussions have likely centered around where markets may be headed and whether the economy will see renewed growth or runs the risk of being in a recession in the near future.

Guidance Amid Market Volatility

According to our second quarter 2025 RIA Economic Outlook Survey, a growing number of RIAs (45%) believed that there was at least a moderate likelihood that the economy would be in a recession in the next 12 months.

That share was up from 29% in the first quarter.

Half of these advisors either had already made changes to client portfolios or were planning on it, while the other half had not.

During volatile markets, advisors often focus on helping clients to preserve capital while seeking modest growth.

This should include educating clients on downside protection and tax-deferred products like annuities.

Since the bond market rout in 2022, there has been an increased interest in the use of fixed indexed annuities, or FIAs, to avoid stock market volatility.

FIAs may appeal to clients concerned about market headwinds because they offer interest crediting strategies that are based on part of the positive movement of financial market indices, not interest rates.

The Appeal of Downside Protection

Our survey noted that 53% of RIAs have seen increased client interest in downside protection solutions since the start of 2025.

Annuities like FIAs are appealing to clients because they offer a guarantee against the loss of principal due to index declines, tax-deferral, and are considered all-weather products, meaning that they are well-suited for volatile conditions like uncertain markets.

This creates the opportunity, for example, to place a portion of client assets in an international index account in an FIA that offers it without clients actually investing in the stock market.

Given the reversal in performance toward international stocks, advisors can deliver the potential benefits of international exposure (including portfolio diversification, currency diversification, and diversification across sectors and companies) but in a risk-free wrapper.

This is timely as well.

J.P. Morgan's Long-Term Capital Market Assumptions suggest developed international stocks may produce better annual returns than U.S. equities over the next 10 to 15 years — about 1.4% per year higher.

An FIA would let clients take advantage of some of that potential while complementing a U.S.-focused portfolio.

Three Time Horizons

Uncertainty will likely remain for some time, and financial advisors should consider educating their clients on fixed index annuity products that provide them with an all-weather tool for the now, near, and future:

Now: Talking to clients about how they can best balance a long-term vision with short-term goals amid uncertainty.

Near: How clients concerned about market headwinds can seek benefits and potential, like with tax-deferred products

Future: Considering annuities for long-term interest potential, downside protection, and less risky portfolios that deliver a degree of financial safety.

Mike Reidy is the RIA sales manager at Security Benefit.

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